Corrections & Clarifications: This story has been changed to reflect updated information about the victim's medical condition.

The Phoenix facility where an incapacitated patient was raped and gave birth faced a criminal investigation two years ago over allegations it billed the state more than $4 million in bogus charges.

Regulators with Arizona's social-welfare agency wanted to remove developmentally disabled patients from Hacienda HealthCare in 2016 and terminate contracts that allowed the facility to provide services for the state.

But the criminal case was dropped in 2017, and no charges were filed. The state's Medicaid agency later sought an order to force Hacienda to turn over financial records – a battle that continues in the courts.

The Arizona Attorney General's Office accused Hacienda's former chief executive officer in 2016 of refusing to turn over financial documents required by law even as he demanded the state pay higher fees for services.

State paid Hacienda despite fraud claims

Despite the court fight, state officials did not sever ties with Hacienda and continued placing patients at the facility. After the rape victim gave birth, they cut off new admissions.

"We are considering alternate options such as bringing in a third party to assume responsibility for the ongoing management of Hacienda," Gov. Doug Ducey's office said in a statement Friday.

Any action to cut state funding in 2016 would have stripped Hacienda of its key revenue stream. The non-profit facility gets more than $20 million annually in taxpayer funds for taking care of extremely ill people, many of whom are incapacitated and on ventilators.

Records obtained by The Arizona Republic show auditors with the Arizona Department of Economic Security accused Hacienda of overbilling the state in 2014 for wages, transportation, housekeeping, maintenance and supplies.

Department auditors laid out their findings against Hacienda in a 2016 presentation to the Attorney General's Office.

They contended the cost of care at the facility was nearly three times the national average. Hacienda's annual average cost of care was $386,000 per client in 2012, compared with $134,000 per client in similar U.S. facilities, the auditors said.

Their audit also highlighted mileage for vehicles that "would average 3,663 miles per (patient), enough to cross the state from east to west 10 times per client."

Auditors said Hacienda claimed 13 vehicles served about 35 patients in 2014, a ratio of one van for every 2.7 patients.

Arizona Attorney General's Mark Brnovich's office confirmed Friday it launched a criminal investigation in 2016 "focused on fiduciary allegations of over-allocated funds." But an official said DES auditors could not substantiate the claims and the case was dropped because of a lack of evidence.

"What happened at Hacienda HealthCare is an inexcusable tragedy," spokeswoman Katie Conner said. "We cannot comment on any possible ongoing investigations or any potential actions this agency may take."

Former DES Director Timothy Jeffries and chief law enforcement officer Charles Loftus, who were forced out by Ducey in 2016, say their investigation of Hacienda was clouded by politics and contributed to their ousters. Both have filed lawsuits against the state.

Jeffries said if the Ducey administration had followed through with his efforts to terminate Hacienda's state contracts and pursued criminal charges against Timmons, the rape never would have occurred.

“The heinous rape of a vulnerable and defenseless San Carlos Apache woman at Hacienda is absolutely disgusting and detestable," Jeffries said Friday. "Hacienda should have been terminated two years ago per my plan ... Hacienda should have been criminally investigated in 2016, vigorously prosecuted in 2017 and prudently terminated in 2017."

Jeffries said Timmons was "intemperate, abusive of and belligerent" when questioned about Hacienda's practices or challenged about expenses. "He was always brandishing that he was going to 'take it to the governor's office.'" he said.

Timmons did not respond to interview requests at his home or through a social-networking site. Phone calls to his number were blocked.

Ex-U.S, Rep. Matt Salmon is a former lobbyist for Hacienda HealthCare who last worked for the facility in 2011. His wife, Nancy Salmon, is Hacienda's vice president of communications. She did not respond to requests for interviews.

In 2011, Matt Salmon opposed changing a state law that could have created more competition for Hacienda from other providers of care to people with disabilities.

Salmon told the Arizona House Committee on Health and Human Services that DES was attempting to put Hacienda out of business because it favors publicly run facilities.

"DES had done everything possible to close Hacienda HealthCare in the last ten years, in spite of the fact that it receives the highest marks by far of any entity providing this kind of care in the state," he said.

Ducey: The investigation continues

Ducey's office on Friday said it had no allegiance to Timmons or Hacienda.

"There has been no influence from Mr. Timmons on our actions, which have been aggressive," according to a statement from the office.

In 2015, the governor signed legislation stripping Hacienda of the statutory monopoly it had for providing certain types of government-funded care.

Ducey spokeswoman Elizabeth Berry said Ducey was horrified by accounts of the rape and denied that the state failed to act on concerns raised by DES.

“We have and will continue to take this issue very seriously -- it's about public safety," Berry said in an email. "Our own state agencies are engaged in investigating Hacienda on multiple fronts, both for financial fraud and in relation to this recent horrific incident. There will be consequences for any violations that occur.”

Berry said Hacienda played no part in the forced resignations of Jeffries and Loftus. They were pushed out following a controversial two-year tenure that included allegations of wrongful staff firings, questionable travel expenses and stockpiling weapons for the agency's security force. Both men denied any wrongdoing.

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Sgt. Tommy Thompson says it's important to seek justice for an incapacitated woman who gave birth after a sexual assault inside a nursing facility.
Brian Snyder, Arizona Republic

Records show within 30 days of taking over DES in 2015, Jeffries identified Hacienda as a "threat" and reported it to Ducey. He repeated his concerns in updates to the governor every three months until 2016, when the criminal probe was launched.

Jeffries said his concerns were driven by reports from case managers about patient care and by Timmons' refusal to turn over financial records.

When the internal auditors reported the financial findings based on the 2014 expenses, Jeffries said he had to act. He said he believed there could be more questionable billings.

"Previous years would underscore the same type of phenomenon ... What happened in 2012 and 2013? What happened in 2015, 2016, 2017 and 2018? We don't know."

He said the state should have investigated Hacienda's finances for every year since it became a state vendor.

"In one year, there was $4.3 million in misbillings," he said. "When did it start?"

Hacienda board unaware of criminal probe

Hacienda's board of directors said Friday that until being contacted by The Republic, it was not aware of any criminal investigation or efforts by the state to suspend its contract.

In a statement provided by Hacienda spokesman David Leibowitz, board members disputed the characterization of the facility's legal dispute as criminal.

"This dispute concerns a legitimate difference of opinion between Hacienda and the state as to whether Hacienda’s allocations of overhead costs and certain other expenses have been done correctly," the statement said.

"Hacienda and its attorneys believe the company has followed the letter of the law," the statement said. "The State appears to believe otherwise. No crime was committed here. No one has been criminally charged. No one has been arrested. No fraud occurred. No unethical or illegal conduct occurred."

The statement said no Hacienda leader or board member improperly exerted influence to aid the organization and never attempted to scuttle any investigation.

"The Hacienda Board of Directors, a volunteer group that draws no pay for its service, would never condone illegal conduct by a Hacienda staff member," the statement said.

The rape and pregnancy has shaken the organization to its foundation, the statement said.

"There is no excusing what happened to a resident of our facility, even if it has never happened before and even if we prevent such an awful thing from happening again," the statement said.

The board is examining all facets of its business and patient safety, it said.

"We will continue to cooperate with Phoenix Police and all other investigative agencies to uncover the facts in this horrific situation," the statement said.

'Fraud, waste and abuse' at facility

State Medicaid officials said Friday they are suing Hacienda for financial records in order to establish a fraud case.

"We can confirm that the office does have an open investigation into Hacienda related to fraud, waste and abuse in the approximate amount of $3 million," said Heidi Capriotti, spokeswoman for Arizona Health Care Cost Containment System.

Hacienda's refusal to comply with letters and subpoenas from the Attorney General’s Office led state officials to file a lawsuit in Maricopa County Superior Court in 2017.

Capriotti said AHCCCS requested a variety of Hacienda’s financial records and sought a subpoena when Hacienda did not comply.

“The fact that the state agencies have repeatedly been stymied when attempting to understand the finances of Hacienda HealthCare and its subsidiaries – presumably in furtherance of other investigations for potential fraud – underscores the need for the court to compel Hacienda HealthCare’s compliance,” a lawyer representing the agency said in a court filing in August 2017.

A judge agreed and last year ordered Hacienda to provide the financial information. Hacienda appealed to a higher court. The case is ongoing.

Loftus pressed for the criminal investigation of Hacienda in 2016. He said he brought the audit findings to the attorney general's medical-fraud unit for criminal prosecution.

"The case clearly had the appearance of a fraudulent scheme," he said last year in a statement prepared in connection with his lawsuit against the state.

He said there was "an extraordinary" level of anxiety among DES employees because they believed Timmons was Ducey's friend.

Campaign contribution records show Timmons made a total of $4,000 in donations to Ducey's campaign in 2014 and 2016. He also donated to other candidates, mostly Republican.

Staff didn't know patient was pregnant

Staff members told police they didn't know their 29-year-old patient was pregnant until she began giving birth Dec. 29.

The woman, a member of the San Carlos Apache tribe, had lived at Hacienda de los Angeles near South Mountain for nearly 26 years. She was admitted when she was 3.

The 112-pound woman is described in court documents as "incapacitated" and "unable to make any decisions or give consent due to her disability." She is described as having a brain injury, reliant on feeding and breathing tubes and in need of a "maximum level of care."

Police obtained a warrant allowing investigators to obtain DNA samples from male workers at the facility. Authorities said the investigation could be a "long process" and asked for the community's assistance in finding a perpetrator.

Arizona faces few options for care

Ducey's office said to its knowledge, it had not received any previous allegations about patient safety or care at Hacienda.

"Provider performance in regard to quality of care has not merited cancellation/termination of the provider’s contract prior to the recent incident," the governor's office said in a statement.

State officials worried severing ties with the facility could leave patients without another place to go because of the limited number of facilities providing similar care.

"There are a limited number of ICF (intermediate-care facility) beds in the state, which poses a challenge in regard to canceling the contract/closing the doors of the facility and moving members to an alternate placement," the governor's office said.

State officials said they are exploring options, such as appointing a third-party to run Hacienda, to "ensure the health and safety of members placed in the facility without disrupting care for this medically complex, medically fragile population."

Hacienda Inc. was founded in 1967 and has several facilities and clinics throughout the Valley. Hacienda de los Angeles is described on the company's website as an all-inclusive residential care, "for long-term, transition-to-home and short-term respite."

The company's website also says it is the only privately owned intermediate-level care facility for people with intellectual disabilities in Arizona.

In addition to stopping payments for new admissions to Hacienda, the state has notified the Centers for Medicaid and Medicare Services of the rape, which could prompt a federal investigation.

"We will continue to take a very aggressive approach when it comes to Hacienda," the governor's office said.

Jeffries said the state should have acted years ago.

"This horrific act, all by itself, should justify to all that Hacienda should be terminated," he said.

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Former Maricopa County Attorney Rick Romley holds a press conference on Jan. 14, 2019, at the Hampton Inn in Phoenix. Romley will lead an internal review into the case of a female patient in a vegetative state who gave birth to a child while being cared for by Hacienda HealthCare. Rob Schumacher/The Republic

Former Maricopa County Attorney Rick Romley holds a press conference on Jan. 14, 2019, at the Hampton Inn in Phoenix. Romley will lead an internal review into the case of a female patient in a vegetative state who gave birth to a child while being cared for by Hacienda HealthCare. Rob Schumacher/The Republic

Former Maricopa County Attorney Rick Romley holds a press conference on Jan. 14, 2019, at the Hampton Inn in Phoenix. Romley will lead an internal review into the case of a female patient in a vegetative state who gave birth to a child while being cared for by Hacienda HealthCare. Rob Schumacher/The Republic

Former Maricopa County Attorney Rick Romley holds a press conference on Jan. 14, 2019, at the Hampton Inn in Phoenix. Romley will lead an internal review into the case of a female patient in a vegetative state who gave birth to a child while being cared for by Hacienda HealthCare. Rob Schumacher/The Republic

Former Maricopa County Attorney Rick Romley holds a press conference on Jan. 14, 2019, at the Hampton Inn in Phoenix. Romley will lead an internal review into the case of a female patient in a vegetative state who gave birth to a child while being cared for by Hacienda HealthCare. Rob Schumacher/The Republic

Former Maricopa County Attorney Rick Romley holds a press conference on Jan. 14, 2019, at the Hampton Inn in Phoenix. Romley will lead an internal review into the case of a female patient in a vegetative state who gave birth to a child while being cared for by Hacienda HealthCare. Rob Schumacher/The Republic

Former Maricopa County Attorney Rick Romley holds a press conference on Jan. 14, 2019, at the Hampton Inn in Phoenix. Romley will lead an internal review into the case of a female patient in a vegetative state who gave birth to a child while being cared for by Hacienda HealthCare. Rob Schumacher/The Republic

Former Maricopa County Attorney Rick Romley holds a press conference on Jan. 14, 2019, at the Hampton Inn in Phoenix. Romley will lead an internal review into the case of a female patient in a vegetative state who gave birth to a child while being cared for by Hacienda HealthCare. Rob Schumacher/The Republic

Phoenix police Sgt. Tommy Thompson addresses reporters Jan. 8, 2019, at a press conference at his department's headquarters. He discussed the case of a patient in a Hacienda HealthCare center for people with intellectual disabilities who became pregnant and gave birth. David Wallace/The Republic

Phoenix Police Department Sgt. Tommy Thompson prepares to address reporters Jan. 8, 2019, at a press conference at his department's Phoenix headquarters. He discussed the case of a patient in a Hacienda HealthCare center for people with intellectual disabilities who became pregnant and gave birth. David Wallace/The Republic

Phoenix police Sgt. Tommy Thompson addresses reporters Jan. 8, 2019, at a press conference at his department's headquarters. He discussed the case of a patient in a Hacienda HealthCare center for people with intellectual disabilities who became pregnant and gave birth. David Wallace/The Republic

Phoenix police Sgt. Tommy Thompson addresses reporters Jan. 8, 2019, at a press conference at his department's headquarters. He discussed the case of a patient in a Hacienda HealthCare center for people with intellectual disabilities who became pregnant and gave birth. David Wallace/The Republic

Phoenix police Sgt. Tommy Thompson addresses reporters Jan. 8, 2019, at a press conference at his department's headquarters. He discussed the case of a patient in a Hacienda HealthCare center for people with intellectual disabilities who became pregnant and gave birth. David Wallace/The Republic

Phoenix police Sgt. Tommy Thompson addresses reporters Jan. 8, 2019, at a press conference at his department's headquarters. He discussed the case of a patient in a Hacienda HealthCare center for people with intellectual disabilities who became pregnant and gave birth. David Wallace/The Republic

Phoenix police Sgt. Tommy Thompson addresses reporters Jan. 8, 2019, at a press conference at his department's headquarters. He discussed the case of a patient in a Hacienda HealthCare center for people with intellectual disabilities who became pregnant and gave birth. David Wallace/The Republic

Phoenix police Sgt. Tommy Thompson addresses reporters Jan. 8, 2019, at a press conference at his department's headquarters. He discussed the case of a patient in a Hacienda HealthCare center for people with intellectual disabilities who became pregnant and gave birth. David Wallace/The Republic

Phoenix police Sgt. Tommy Thompson addresses reporters Jan. 8, 2019, at a press conference at his department's headquarters. He discussed the case of a patient in a Hacienda HealthCare center for people with intellectual disabilities who became pregnant and gave birth. David Wallace/The Republic

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